20.10.2023 – While the Middle East conflict continues to smoulder, a surprising turnaround has occurred in the USA: Jerome Powell has signalled a longer pause in interest rates than he has done in a long time. In view of looming risks, the move could be a small help for the financial market. Especially the bulls in high-tech stocks are likely to be grateful. Which is also due to a word from London.
With a little imagination, a triangle formation can be seen in the weekly chart of the Nasdaq 100. This means that the market is probably heading for a decision. Interestingly, the Bank of England has just commented on tech stocks, as Finanzen.net reported. In an unusual move, the Financial Policy Committee said that given the impact of higher interest rates and because of uncertainties around inflation and growth, valuations of some risky assets appeared to be stretched. In other words, a correction is imminent.
Which brings us to the Federal Reserve. In his speech yesterday to the Economic Club of New York, Fed Chairman Powell gave the usual on the one hand and on the other. Nevertheless, the moderate tones stuck. The always well-informed “Wall Street Journal” said: “Fed’s Jerome Powell Signals Extended Pause in Rate Rises”. The latest economic figures pointed to an ongoing process of lowering inflation while maintaining strong employment.
Specifically, Powell said, “indicators of wage growth show a gradual decline toward levels that would be consistent with 2 percent inflation over time.” He added: “Doing too much could also do unnecessary harm to the economy.” He also commented on bond yields: “Financial conditions have tightened significantly in recent months, and longer-term bond yields have been an important driving factor in this tightening. We remain attentive to these developments because persistent changes in financial conditions can have implications for the path of monetary policy.”
Too much at once
The market was dominated by the assessment that perhaps too much is going wrong at the moment. Above all, concerns about a conflagration in Israel are weighing on minds. In addition, the Leading Economic Indicators (LEI) of the Conference Board in the USA slipped for the 18th time in a row – in September, they fell by 0.7 percent month-on-month, compared to the expected minus 0.4 percent. Meanwhile, sales of pre-owned homes fell to their lowest level in 13 years. It is little consolation that the month-on-month decline was only 2 per cent, compared to the 3.7 per cent drop that had been expected. But year-on-year, this was still a plunge of 15 per cent.
Our conclusion: Perhaps the latest word from the Fed was the signal for a complete end to tightening. If there is a recession that is mild and if external shocks such as a major war in the Middle East do not materialise, this should at some point bring about a new buying mood. Only when? Bernstein Bank wishes you successful trades and investments!
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